Federated Department Stores, Cincinnati, had second quarter net income of $63 million, compared with net income of $137 million in the same period in 1999. For the quarter, Federated’s sales were $4.065 billion, a $1.5% increase over the $4.006 billion the chain recorded a year ago. The quarter ended July 29.
The company attributed the drop in income to previously announced credit problems at its Fingerhut subsidiary. On July 20, the company said that it would incur charges of up to $250 million over several quarters correcting a higher-than-anticipated bad debt problem.
At the time, the company attributed four factors for its recent rise in credit delinquencies:
* Conversion from closed-end installment to revolving credit, which it started in fall 1998;
* Implementation of late fees, which did not make up for write offs;
* Aggressive solicitation of new customers with deferred-credit offers, which it began late in 1999; and
* Economic conditions among lower-income customers that make it harder for these clients to meet credit obligations.
To remedy this, the company has begun to increase its collections activities; lower credit lines and tighten its guidelines for initial offers of credit; introduce credit-scoring criteria when raising or lowering credit levels; aggressively verify addresses when granting new credit accounts; reduce deferred-credit offerings and implement a minimum-purchase requirement for them; and revise its billing statements to highlight the Fingerhut name.
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